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Malone was born in Sparks, Nevada, to Deborah "Debbie" Malone. She was raised by her mother and her mother's girlfriend at the time, whom she has called "Godmom".[2] Malone has stated that her biological father's surname was "Berge" or "Bergen", and that he was of part Norwegian descent; she also has Irish ancestry.[3] By the time she was 9 years old, she had already lived in 27 different locations.[4] Malone began taking an interest in acting after watching her mother, who was involved in community theatre.[5] In 1995, she moved to Las Vegas, and later persuaded her mother to move to Los Angeles, California to pursue a career in acting.[6] In Los Angeles, California, Malone has stated that she and her mother struggled with money. Malone was home-schooled from sixth to eighth grade. She attended the Professional Children's School, for the ninth grade in New York,[6] and quit it after a year, when she became legally emancipated, in January 2000.[7][8] At some point she later obtained her General Educational Development (GED).[9] She has one younger sister, Madison Mae Malone (born 1997).

After working on various TV projects, and as a supporting actress in films such as Contact and Stepmom, Malone had her first cinematic leading role in the 2001 cult hit Donnie Darko as Gretchen Ross, the new girl in town who becomes the girlfriend of Jake Gyllenhaal's title character.

Malone co-produced the 2002 film American Girl, a drama in which she also acted. In the 2004 film Saved!, she got top billing in her first role as the primary star. In 2005, she played the spoiled fifth Bennet daughter Lydia in the film Pride and Prejudice. In 2006, she made her professional stage debut in the Broadway production of the Tony Award–winning play Doubt.

In 2007, it was announced that Malone was releasing her first single on The Social Registry, a New York City experimental music label. A number of tracks were posted to her MySpace page.[12]Pitchfork Media has described Malone's music as "pretty out-there – bedroom electronics, spaced-out keyboards, and Malone's spare vocals."[13] Malone's more recent musical work is performed as/with The Shoe.[14]

In 2011, Malone played the role of Rocket in Zack Snyder's Sucker Punch. In 2012, Malone also starred in a two-part series on the YouTube channel Wigs entitled Dakota portraying the title character. She also played the role of Carson McCullers in the film Lonely Hunter, directed by Deborah Kampmeir.[15]

In November 2014, Malone exhibited 39 photographs that she took in Myanmar in the summer of that year.[20][21] The exhibition, which ran from November 21 to November 28, 2014, was called "The Holy Other."[20][21] It took place at MAMA, an art gallery owned by her personal friend Adarsha Benjamin in Downtown Los Angeles.[20][21] Proceeds were donated to Girl Determined, a non-profit organization which benefits girls' education in Myanmar.[21]